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SA Corporate June 2013 Interim Results Presentation
August 2013
Agenda
• Highlights Rory Mackey
• Financial Performance Antoinette Basson
• Portfolio Review Rory Mackey
• Strategic Objectives Rory Mackey
• Prospects Rory Mackey
• Acknowledgments Rory Mackey
• Questions Team
2
HIGHLIGHTSRORY MACKEY
High Level Review
• Distribution Themes• Interim distribution growth of 7.3%
• Standing portfolio net property income growth of 5.4%
• Industrial sector characterised by low vacancies and positive reversions
• Retail sector characterised by stable retentions and positive reversions despite tough trading conditions
• Investment Strategy • Pending contracted acquisitions totalling R575m at 9% forward yield & transfer of PwC building for
R65m
• Disposal of 4 properties for R116.5m
• Successful Migration of Property Management to Broll from 1 July • Property management fee savings in excess of 20%
• Quick wins achieved in leasing & arrears management
• Capital Structure• Weighted average cost of debt supportive of core income growth adequately hedged with correct tenors
• Inaugural rating achieved to access debt capital markets
• Alignment of Investor & Management Interests• The Fund is still in discussions with Old Mutual Property
4
FINANCIAL PERFORMANCEANTOINETTE BASSON
Distribution History
6
14.50 14.45 14.24 14.35 15.17
16.28 15.25
13.24
14.18 14.48 14.98
29.75
27.69 28.42 28.83
30.15
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2008 2009 2010 2011 2012 2013
Interim Final Total
Distribution growth
7
-0.3%-1.5%
0.8%
5.7%
7.3%
-13.2%
7.1%
2.1%
3.5%
-6.9%
2.6%
1.4%
4.6%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2009 2010 2011 2012 2013
Interim Final Total
Distribution at a glance
8
Jun 2013Rm
Jun 2012Rm
%Variance
Net Property Income 376.67 392.31 (4.0)
Investment Income (Oryx) - 1.40 (100.0)
Net finance costs (33.10) (61.59) 46.3
Fund Expenses (30.17) (22.48) (34.2)
Taxation 0.10 0.70 85.2
Lapsed distribution 8.81 0.80 100.0
Distributable earnings 322.32 311.13 3.6
Distribution per unit (cents) 16.28 15.17 7.3
Distribution contributors and detractors
9
15.17
-1.21-0.10
0.52
-0.07
1.39
-0.37
0.95
16.28
13
14
15
16
17
Distribution
31 Jun 2012
Decrease in
Rental
Income
Decrease in
property
expenditure
recoveries
Decrease in
Property
Expenses
Decrease in
Investment
Income
(Oryx)
Decrease in
Net Interest
Paid
Increase in
Fund
Expenses
Unit Buy-
backs
Distribution
31 Jun 2013
Group Financial Position
10
Rmillion
7,6
33
37
0
13
83
9
1,0
63
1,0
15
7,9
67
18
3
23
57
1
76
8
1,0
03
8,2
77
11
2
52
43
2
1,2
16
48
9
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Investment
Properties
For sale Other Non-current
assets
Current Assets Non-current
liabilities
Current Liabilities
June 2012
December 2012
June 2013
Disposal Proceeds
11
Rm
Disposal Proceeds at 31 December 2012 297
Net Disposal Proceeds for 2013 115
Units Bought Back in 2013 (223)
Disposal Proceeds at 30 June 2013 189
Group debt structure – at period end
12
Maturity and interest rate profile of interest-bearing debt at 30 June 2013 - WAR –7.40%
Rate type:
7.45% Fixed
7.45% Fixed
7.15% Variable
8.23% Fixed
6.80% Variable
7.41% Fixed399.8
300.0
200.0
16.2
270.0
30.0
183.8
-
0 100 200 300 400 500
September 2014
December 2014
April 2015
July 2016
August 2018
August 2018
Amount Drawn Available
Group debt structure – post period end
13
Maturity and interest rate profile of interest-bearing debt at 14 August 2013 after negotiation of additional swaps on 24 July and renegotiation of R270m and R30m facilities on 14 August 2013 - WAR - 7.86%
Rate type:
7.70% Fixed
7.70% Fixed
7.13% Fixed
8.55% Fixed
7.73% Fixed
7.73% Fixed399.8
276.2
200.0
-
270.0
30.0
23.8
200.0
0 100 200 300 400 500
September 2014
December 2014
April 2015
July 2016
August 2018
August 2018
Amount Drawn Available
Group net cash flow
14
407,281 367,128
75,051
(65,000)
114,752
(305,475)
(61,988)
(214,683)
(33,095)
283,971
(400,000)
(300,000)
(200,000)
(100,000)
-
100,000
200,000
300,000
400,000
500,000
Ba
lan
ce 3
1 D
ece
mb
er
20
12
Ca
sh f
rom
op
era
tin
g a
ctiv
itie
s
Bo
rro
win
gs
rep
aid
Acq
uis
itio
n o
f In
ve
stm
en
t P
rop
ert
y
Pro
cee
ds
on
sa
le o
f a
sse
ts
Dis
trib
uti
on
Imp
rov
em
en
ts t
o p
rop
ert
ies
an
d
fixe
d a
sse
ts
Un
it B
uy
-ba
ck
Ne
t fi
na
nce
co
sts
Ba
lan
ce 3
0 J
un
e 2
01
3
R '000
Net Asset Value
15
342 -1
1
36
-16 362
300
325
350
375
400
Opening NAV 1
January 2013
Buy Back of units Amortisation of
debt restructure
Net Profit for the
period
Distribution Closing NAV 30
June 2013
SA Corporate Historic Yield
16
Dividend Yield relative to Property Index
17
Trading Volumes and liquidity
18
SAC: closing price v monthly volume traded Value traded as % of market capital
-
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
0
50
100
150
200
250
300
350
400
450
500
Jul-
12
Au
g-1
2
Se
p-1
2
Oct
-12
No
v-1
2
De
c-1
2
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Volume Traded Closing Price ( c )
ACPVKE
GRT
SAC
EMI
CPL
RDF
HYP
SYC
FPT
0%
10%
20%
30%
40%
50%
60%
70%
-10,000 - 10,000 20,000 30,000 40,000 50,000 60,000
PORTFOLIO REVIEWRORY MACKEY
Overview – Sectoral Analysis
20
Industrial 59%
(Dec-12: 59%)
Retail 34%
(Dec-12: 35%)
Commercial7%
(Dec-12:6%)
By GLA
Industrial 45%
(Dec-12:44%)
Retail 46%
(Dec-12:47%)
Commercial9%
(Dec-12:9%)
By Market Value
136 Properties
Total GLA 1 168 721
Total Portfolio R8.4bn
Average discount rate
14.7%
Capitalisation rate
9.2%
5,202
9,250 9,103
6,8655,377
9,886 9,433
7,178
-
5,000
10,000
Industrial Retail Commercial Average
Market Value per m²
December 2012 June 2013
Overview – Geographical Analysis
21
Gauteng52%
(Dec-12: 52%)
KwaZulu-Natal39%
(Dec-12: 39%)
Western Cape
7% (Dec-12: 7%)
Other2%
(Dec-12: 2%)
By GLA
Gauteng47%(Dec-
12:46%)
KwaZulu-Natal
44% (Dec-12: 44%)
Western Cape7% (Dec-12:
7%)
Other2%
(Dec-12: 2%)
By Market Value
10 largest properties
22
Sector Area m² Value (Rm) % of total
Musgrave Centre Retail 39,390 691.2 8.2%
East Rand Galleria Retail 50,357 493.8 5.9%
Pine Crest Centre Retail 40,133 302.9* 3.6%
57 Sarel Baard Crescent - Centurion Industrial 34,460 284.4 3.4%
Beryl Street - Jet Park Industrial 27,680 269.2 3.2%
Umlazi Mega City Retail 36,014 268.9* 3.2%
Springfield Value Centre Retail 20,259 263.9 3.1%
112 Yaldwyn Road - Jet Park Industrial 30,299 260.5 3.1%
Bluff Shopping Centre Retail 21,382 254.0 3.0%
37 Yaldwyn Road - Jet Park Industrial 39,738 208.9 2.5%
Total 339,712 3,297.6 39.3%
* Represents ownership % of valuation
Acquisitions
23
Property SectorGLA(m²)
Forward Yield %
Purchase price (R000)
Date of transfer
PwC Building -102 Essenwood, Durban Office 4,671 10.6 65,000 May-13
Total 4,671 65,000
Pending Contracted Acquisitions
24
Property SectorGLA(m²)
Forward Yield %
Purchase price (R000)
Expected date of transfer
World Trade Centre, Sandton Office 15,478 9.0 360,000 Oct-13
Nampak, DenverUPM Raflatac, LongmeadowWepco Tools, Founders View
Industrial24,8801,5002,830
9.0 90,450 Aug-13
Eveready & Continental Tyres, New Brighton, PE
Industrial 56,411 9.0 124,500 Nov-13
Total 574,950
Disposals
25
Property SectorGLA(m²)
Exit Yield %
Sales price (R000)
Status transferred
Clubview Corner, Pretoria Retail 5,835 8.4 27,000 Jan-13
425 West Street, Durban Retail 9,559 10 54,500 Jan-13
The Ridge, Roodepoort Retail 4,668 9.0 30,000 Mar-13
Main Street, Gingindlovu Industrial 2,992 6.6* 5,000 Jun-13
Total at 30 June 2013 23,054 116,500
Post interim period:
106 Johann Avenue, Sandton Office 2,429 4.4* 35,000 Jul-13
Total 25,483 151,500
* Estimated as building is fully vacant.
Properties held for sale
26
Property SectorGLA(m²)
Exit Yield %
Sales price (R000)
Expected date of transfer
13 Wellington Road, Parktown Office 3,300 6.6* 17,800 Aug-13
131 Jan Hofmeyer Road, Westville Office 2,160 7.8* 23,900 Aug-13
Philani Valley Shopping Centre, Umlazi Retail 12,940 3.5 40,500 Sep-13
Total 18,400 82,200
* Estimated as building is fully vacant.
Lease renewals - % Rental Reversions
27
5.3%
0.9%
-1.0%
2.4%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Industrial Retail Commercial Total
12 months to Jun 2013
Contracted rental escalation profile
28
8.3% 8.3% 8.3% 8.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Industrial Retail Commercial Total
Group lease expiry
29
Vacancie
sMonthly 2013 2014 2015 2016 2017+
% of GLA 6% 5% 10% 15% 22% 9% 33%
Cumulative 6% 11% 21% 36% 57% 67% 100%
6% 5%
10%
15%
22%
9%
33%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
35%
40%
% of GLA
Largest expiries for the next 6 months
30
The following tenants, with an area > 2 000m², will expire in the next 6 months:
Property Sector TenantGLA(m²)
update
Cnr Rudo Nel and Tudor Streets, Jet Park Industrial The Fuel Logistics Group 10,786 Lease renewed for 1 year
Cnr Handel and Crownwood Roads, Ormonde Office A C Nielsen Marketing & Media 6,131 Lease renewed for 3 years
Middelburg Pick n Pay, Middelburg Retail Pick n Pay 4,641 Lease renewed for 5 years
Hayfields Mall, Pietermaritzburg Retail Pick n Pay 4,476 Lease renewed for 5 years
Cnr Isotope and Bridge Street, Bellville Industrial Sandown Commercial Vehicles 4,178 In discussion with tenant to renew lease
21 Pomona Road, Pomona Industrial Kuehne + Nagel 4,585 Lease renewed for 3 years
33 Ontdekkers Road, Roodepoort Industrial Unitrans Automotive 6,386 Lease renewed for 10 years
8 Director Drive, Aeroport Industrial Berco Express 3,750 In discussion with tenant to renew lease
3 Wankel Street, Jet Park Industrial Abes Technoseal 3,952 Lease renewed for 5 years
20 Kyalami Road, Pinetown Industrial Independent Food Processors 2,661 In discussion with tenant to renew lease
Pine Crest Shopping Centre, Pinetown Retail Woolworths 2,577 Lease renewed for 5 years
121 Intersite Avenue, Durban Industrial Burchmores 2,379 In discussion with tenant to renew lease
56,502
Vacancy profile - % of gross rental
31
2.2%
5.9%
9.5%
4.9%
1.5%
5.8%
14.1%
4.9%
0.4%
6.2%
14.1%
4.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Industrial Retail Commercial Total
June 2012 December 2012 June 2013
Vacancy profile - % of GLA
32
3.7%
11.5%
14.5%
7.4%
1.3%
10.6%
19.2%
5.9%
0.7%
11.9%
19.9%
6.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Industrial Retail Commercial Total
June 2012 December 2012 June 2013
Vacancy Progress Post 30 June with Broll
33
Property Retail % Industrial % Commercial %
Vacancy per GLA as at 30 June 2013 11.86 0.7 19.88
Held for expansion -0.36 0 0
Letting activity subsequent to interim period -2.83 -0.66 0.2
Sold after interim period 0 0 -2.52
Pending sale 0 0 -3.43
Held for sale -0.47 0 0
Vacancy Remaining: 8.21 0.04 14.14
Ratio of gross recurring cost to property revenue
34
32.8%33.6%
34.4%35.5% 35.8% 36.2% 36.2%
14.8%13.9%
14.7% 15.4% 15.0% 14.3% 14.2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Jun 2013
Property expenses Property expenses excluding municipal expenses
Property expense categories
35
Advertising 1.78%
Bad debts 2.82%
Cleaning & Security 10.74%
Municipal Expenses 60.83%
Insurance 1.15%
Legal Expenses 1.32%
Letting Expenses 4.07%
Maintenance 6.37%
Sundry Expenses 3.17%
Property management fee 7.74%
Property Arrears and Provisions
36
TENANT DEBTORS AND PROVISIONS Jun-13 Dec-12 Jun-12
Total Trade Receivables
Trade receivable before bad debt impairment (Incl. VAT) 48,031 47,415 53,247
Provision for bad debts (24,701) (27,229) (35,205)
Trade Receivable after bad debt impairment
(excluding debtors with credit balances) 23,330 20,186 18,042
Provision for bad debt
Opening balance 27,229 35,205 41,655
Amounts written off during the period (9,522) (4,231) (16,093)
Additional net provision recognised 6,994 (3,745) 9,643
Closing balance 24,701 27,229 35,205
Ratios
Provision as a % of total trade receivable 51.4% 57.4% 66.1%
Provision as a percentage of rental income 2.1% 2.2% 2.9%
Trade receivables as a percentage of rental income 3.6% 3.4% 3.8%
Property Arrears Progress Post 30 June with Broll
37
TENANT DEBTORS AND PROVISIONS Jul-13 Jun-13
Total Trade Receivables
Trade receivable before bad debt impairment (Incl. VAT) 40,964 48,031
Provision for bad debts (20,875) (24,701)
Trade Receivable after bad debt impairment
(excluding debtors with credit balances) 20,089 23,330
Ratios
Provision as a % of total trade receivable 51.0% 51.4%
Provision as a percentage of rental income 1.8% 2.1%
Trade receivables as a percentage of rental income 3.1% 3.6%
LEGAL ARREARS PROGRESS BY BROLL TO DATE
Amount ProvisionProvision
(%)
Legal Arrears as at June 2013 28,816,670 18,443,776 64.0
Broll Progress to Date
Settlements 3,726,060 3,207,300 86.1
Receipts 1,493,133 638,749 42.8
5,219,193 3,846,049 73.7
Developments
38
Name of Property Sector Expected Capex Yield
Middelburg Pick n Pay, Middelburg Retail R5.3m 11.6%
Town Square Shopping Centre (Woolworths), Westrand Retail R8.7m 8.4%
Name of Property Sector Expected Capex Yield
Cnr Rudo Nel & Tudor Streets, Jet Park Industrial R39m 10.8%
Redevelopments
STRATEGIC OBJECTIVESRORY MACKEY
Strategic ObjectivesFour pillars: delivery of sustainable distribution growth
40
Investment Strategy
Optimal Capital Structure
Property Management Strategy
Alignment of investor and management
interests
• Acquisitions to enhance the quality
of industrial portfolio and growth of
retail portfolio
• Acquire premium grade offices in
prime locations & divest from
largely vacant C grade offices
• Exploit redevelopment
opportunities
• Purchase of 4 industrial buildings
for R215m
• Premium grade office tower of
R360m in addition to R65m
purchase made
• Sale of 3 C grade offices and
underperforming retail centre for
R117,2m
• In negotiations for various
acquisitions
• Unlocked obstacles for
redevelopment of flagship
properties
• Sector best property management
services
• Broll appointed 1 July
• JV with Retail Africa to co-invest in
redevelopments
• Significant reduction in property
management fees
• Significant progress made – retail
vacancies
• Improved collections and reduced
provisions
• Redevelopment opportunities
without NAV dilution
• Well priced debt
• Appropriate Gearing
• Managed Interest rate policy
• Good pricing on debt expiries
• Weighted average cost of debt
supportive of core income growth
• Well structured hedging (tenor and
pricing)
• Achieved inaugural GCR rating of
A1-za
• Repurchased 58.9m units at a
weighted average price of
378.61cpu
• Implementation of structure
aligned to unit holder interests
• Conversion to REIT company
• REIT status approved
• The Fund is still in discussions with
Old Mutual Property
• Engaging with regulators and other
PUTs re REIT Co conversion
PROSPECTSRORY MACKEY
Prospects
• Global and SA economic recovery slow
• Improved property management
• Debt and capital market price volatility
• Good progress with quality acquisitions
• Reduced dilution through sales
• Similar level of distribution growth achievable for the full financial year
42
ACKNOWLEDGEMENTS
QUESTIONS
